Shares and Assets Valuation Manual

Tax Advantaged Share Schemes: flotation

Companies which are about to float will often request a valuation. In such cases it is essential to check with The Employee Shares and Securities Unit (ESSU) that any SAYE, SIP or CSOP scheme has been approved.

If the price, or likely price, on flotation is available it will be relevant information. If the likely flotation price is known you will sometimes find that the company will want to use this price with a discount to reflect the risk that the float may take place much later than expected, or even not take place at all. The decision whether a discount is appropriate and, if so, the extent of such discount, will depend on the individual circumstances of the case.

Where a valuation is required after the issue of the prospectus and at a date when the flotation price is already published the company may want that price to be the fiscal market value. In many cases this will be acceptable because the flotation price is a reasonable estimate of market value. The usual date of valuation is the day before the shares are admitted to the Official List so that, by then, any discount for uncertainty, and so on is minimal. In some cases there may be a ‘grey market’ in the shares during the period before the flotation. Therefore, in all flotation cases you will need to examine press comment very closely to see if there is a grey market and, if so, take those deals into account. If the agents request advanced agreement prior to the offer price being known, you will need to tell them that it is too early to say and that you will need to wait and see what information there is in the financial press about grey market prices or likely premium during the period prior to the actual date of valuation.

If the flotation is a placing the shares are placed with institutions rather than offered for sale to the public. The placing price can vary right up to the last moment. In these cases you will need to ensure that you have all the relevant information to hand and be prepared to agree the value over the telephone at the last minute.

If press comment suggests that the placing price may be inadequate there may be grounds for contending that the market value should be at a premium to the placing price. However, you should confine any such arguments to where there is likely to be a substantial premium. There have been very few cases over the years in which SAV has insisted on such a premium.

Unless the options are to be granted unconditionally no later than the day before the shares are admitted to the Official List of the Stock Exchange, ESSU are not prepared to agree to any earlier date than the date of grant for determining the market value for approved schemes. The consequence is that the exercise price of options granted on the flotation date must be based on the market value of the shares on the date of grant, that is the closing quoted price determined in accordance with Section 272 (3) TCGA 1992.

However, where options are to be granted on the day that dealings commence, but before the market opens, a pragmatic solution, if possible, should be agreed.

If a valuation is required after the flotation date the company has to use the quoted price determined in accordance with Section 272 (3) TCGA 1992 and SAV will not normally be involved.